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JUNE 9, 2003
Spain: Shrugging Off the Euro Zone's Malaise While most of the euro zone is languishing, Spain is bucking the trend. Modest job growth, low interest rates, and a sound government balance sheet should ensure that its economy remains one of the region's top performers. First-quarter gross domestic product grew a slightly better-than-expected 0.5% from the previous quarter and 2.1% from the year before (chart). Business outlays for capital equipment improved, rising 0.9% from the 2002 period, the first increase in two years. But households remain the backbone of growth, with spending rising 2.1%. Consumers are also buying new homes, driving up construction spending by 4%. More jobs are a big reason for the strong consumer spending. In the first quarter, payrolls rose by 55,100, although the unemployment rate did move up to 11.7%. While the jobless rate is still the highest in the euro zone, 377,000 jobs have been created in the past year. Negative real interest rates, meanwhile, are supporting the robust housing market. April inflation slowed to 3.1%, but the European Central Bank's official rate stands at 2.5%. Recently dovish talk on inflation by the ECB has economists expecting a cut at its June 5 meeting. That would send real rates even lower. A rate cut takes several months to stimulate business spending, but the effect on the housing sector should be swifter. Even so, the government's 3% growth forecast seems a bit optimistic. Tourism, a key part of the economy, could be set back by the soaring euro. The strong currency is also crimping exports to areas outside of the euro zone, while stumbling economies are limiting exports within the region. Yearly export growth slowed to 5.5% last quarter. If the economy begins to sour, the government has plenty of flexibility to prop up growth. Through April, the budget surplus is at $9.4 billion, or 1.5% of GDP. Right now, economists see Spain's economy growing near 2%, far better than expectations of less than 1% for the euro zone.  By James Mehring in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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